Credit Unions, Banks, and why do people keep saying FinTech?
Credit Unions, Banks, and why do people keep saying FinTech?
We wanted to begin this journey by starting with the basics. A foundation to build on if you will.
Has anyone ever asked you what financial institution you use? Probably not right… Most likely they ask you where you bank.
Ok, I’m going to get a little bit technical for a minute to break this down but I promise there won’t be a quiz… so come along with me.
Sometimes people say financial institution, sometimes banking institution. The easy definition of a financial institution is a corporation which acts as intermediaries for financial transactions. That was a mouthful huh? What does that really mean? It’s the place where you do your banking.
Did you know that there are several types of financial institutions?
Insurance companies, mortgage brokers, etc are some of just a few of the types of financial institutions for but for this discussion, we are sticking with the kind we most associate with banking. So, the places that do your financial transactions. Think deposits, using your debit card, accessing your savings account or paying your mortgage or car note.
The thing many people don’t know is there are several options when it comes to banking and some those don’t really fit the traditional idea of a bank you may have in your head.
When you are in town, you probably see a bank on almost every corner, but there are also credit unions, online banks or maybe you’ve even heard of a fintech.
How many of you just asked yourself “what is a fin tech”? Hang tight, we are going to come back to that one.
What many people don’t realize is you can choose what type of financial institution you use, and it doesn’t have to be a traditional bank.
First let/s talk about banks and credit union.
Banks and credit unions are VERY similar, BUT not only are there a lot of misconceptions about credit unions there are people who have never even heard of one or know it’s function. To answer that, it’s a financial institution similar to a bank.
Let’s start with the first question most people ask, are the services different? Not really. Most credit unions offer many of the same services as a bank. They offer checking and savings accounts, loans, online services like online banking and apps, as well services like Zelle or Venmo so you can send money to your friends or vice versa. The services offered by any financial institution depend on what that particular institution has decided to offer and that goes for a bank or credit union.
The reality is, many services have a cost associated with them. Like administrative costs or processing costs or something similar. So, when adding a service like online banking or Zelle or an app there is often a cost to the bank or credit union. This can make it more challenging for smaller financial institutions to implement new technologies.
So, what makes a credit union different?
A credit union is owned by the members and is not for profit. Any money made can be given back the members in the form of higher interest on savings accounts and lower interest rates on loans. You will generally find the fees lower too.
Banks are for profit. Want to know a little secret that’s not that secret? The primary income for either is interest on loans and fees. For a bank, the money made goes to their owners. That could be a company, an individual, or maybe a group of people. Like we said, for a credit union we are able to pass that along to the members in the form of better interest rates and lower fees.
Both banks and credit unions are federally regulated and insured.
Loans can be easier at a credit union. Credit unions can often offer loans to people with lower credit scores whereas a bank may not have that option. So if you are trying to build credit or repair credit you may have better luck getting a loan at a credit union.
Another question we get often is, But not everyone can join a credit union right? Actually often you can. There are both private and public credit unions. Either way there is usually some kind of criteria to meet in order to join but it’s not as difficult as it sounds.
Private credit unions are associated with a group or industry, sometimes more than one. For example, First Pioneers was for AT&T employees. There are ones for service members, postal workers, fire fighters, etc. Immediate family members of those groups are usually eligible for membership as well.
Then you have public credit unions. Again, for First Pioneers our criteria includes where you live, work, worship or go to school and it covers a 5 parish area surrounding our location. Immediate family is eligible in this situation too. Our credit union was issued a community charter which allows us to do business in those parishes. A credit union can request a change to their charter to do something like add a geographic area which allows a credit union to expand where or how they do business.
If you are interested in joining a credit union, I recommend checking the ones in your area for their criteria and go from there. You would be surprised just how easy it can be.
Let’s go a step further on being a member… You literally join a credit union, it’s not just opening an account. The act of opening an account is really all it takes, but at that point you have a share ownership in the credit union. In fact, your savings account will be called a “share” account instead of savings because your deposit is your share.
Here’s another myth… Credit unions are all small and local right? Credit unions vary in size just like banks. You may find bigger ones with multiple locations or even nationwide locations or you may find smaller ones that focus on one group and have fewer locations, perhaps even just one. Like many things, one size does not fit all.
I’ve had several people tell me how they don’t join because the want to be able to access their bank when they travel and be able to use an ATM.
Many credit unions are part of Co_Op Shared branching network. What does that mean? There is a website that allows you to look for a share branch when you need one. Find the branch, and they handle your transaction for you. In fact, there are over 5,500 nationwide, so there is most likely a location wherever you are.
As for ATMs, some will charge a fee for using them, some won’t. It can be a little tricky knowing which ones on your network so there is no fee but once you know your network can find locations you need. We will talk about this more on another post to help you understand this better!
Now lets talk about online banks. Have you heard of Ally or maybe Discover Bank? Those are examples online banks. They are full-service banks but they don’t have a brick and mortar or physical location. There can be an advantage to that. With lower overhead they may be able to charge less fees or better rates. The disadvantage is if you would like face to face interaction with someone that really isn’t an option. It can be a great fit for some, but for others, losing that personal touch makes a difference.
Lastly, let’s talk FinTech. So how many of you have been hearing people say FinTech recently? One example of a fintech is Chime.
What is FinTech? It’s actually short for Financial Technology. The thing is Fin Tech is actually really broad and there are several companies that fall under that umbrella. and companies like Chime are just one example. This is a topic for another day in order to cover it thoroughly, but I do want to speak briefly about companies like Chime.
Chime is a financial technology company that is online only. They offer savings and checking accounts by partnering with two banks. So it’s not like a traditional bank. Their website indicates there are no fees but you will often find they use a third-party company for deposits so there may be fees associated with that.
Some of the newer fintechs like Chime work differently than traditional banking so I would simply say, carefully read what services are offered and how they will actually work including the fees involved so that you know what to expect so you are not caught unaware.
READ THE FINE PRINT!
The bottom line is there are plenty of banks, credit unions, online banks and more to choose from and it can be overwhelming. A great place to start to narrow down where you would like to do your financial business is to talk with people you trust and get their input. You can also consider what services you are looking for and begin a search with those in mind and look for the best match for your needs.
Remember this one… ASK QUESTIONS! It’s your money, ask what you don’t understand until you understand it.
Financial institutions are not one size fits all and I believe there is a fit for every person.
One last thing… Even though it may seem like a daunting task, if you are unhappy with your current financial partner, don’t be afraid to shop around and look for another. Working with people you trust and who have your best interest at heart is the best way to a successful financial future.